Doing Business in Thailand

What is the disclosure requirement?

The disclosure requirement was one of the measures taken by the Thai Government to avoid the use of Thai nominees by foreign investors. Since August 14th 2006, the Department of Business Development is compelled to require at time of incorporation of a company that the company Thai shareholders justify the source of their investment if certain circumstances are met.

To whom does the disclosure requirement apply?

The disclosure requirement obligation do not apply to foreign investors but to the Thai shareholders that invest with them.

When does a Thai Shareholder need to disclose the source of his investment?

Thai Shareholders only need to disclose the source of their investment if they invest in a company that has

(1) foreign shareholders owning more than 40% of the entire company shares capital or

(2) has a foreign authorized director with sole signature.

When is disclosure not required?

No justification is needed if the Company:

(1) Does not have foreign director; or

(2) has a foreign director who is not an authorized signatory; or

(3) has a foreign director who is an authorized signatory together with a Thai director; and

(4.1) does not have any foreign shareholder; or

(4.2) has foreign shareholders who hold less than 40% of the entire company share capital.

Does the requirement apply to Thai shareholders that invest into foreign owned companies?

Thai shareholders that invest into a company which share capital is majority owned by a foreign investor (for example a manufacturing company) are not compelled to disclose the source of their investment.

Does the requirement also apply to the foreign investor?

No; foreign investors are not compelled to disclose the source of their investment.

What about companies incorporated prior to the enactment of this regulation?

To date, no circular or regulation has been enacted that would compel the Department of Business Development to require additional documents from Thai Shareholders of company that have been registered before the enactment of this regulation.

The Deputy Director General of the Ministry of Commerce has at the time when this new regulation was enforced assured the president of the Joint Foreign Chamber of Commerce that the provisions were only targeted at new business applicants, not companies that are restructuring (financial or management), or renewing their licenses, and not retroactive.

Furthermore the Department does not request Thai shareholders to disclose the source of their investment at the time of post incorporation changes to the company affidavit or shareholder lists.

The regulation does not impose the Department to implement yearly check of the status of Thai companies with foreign directors or shareholders (to the difference of the Interior Ministry regulation that imposes an obligation of disclosure of the source of investment of Thai shareholders of Thai companies that own land).

Does this mean that foreign investors cannot anymore hold 49% of a Thai company?

Not at all, it simply mean that if they own 40% or more at the time of incorporation of the company their Thai shareholders will have to disclose the source of their investment.

Is this regulation effective in preventing Thai to become nominee?

Not really, I mean this is typically one of those pieces of regulation, which are issued to solve a problem without solving it.

The reason this regulation was enacted was to make it more difficult for foreign investors to use Thai nominee’s shareholders when incorporating new companies.  But it does not solve the problem.

It suffices to escape the controlling requirement to fly under the radar. Indeed, Thai shareholders of a company that do not have a foreign authorized director and a foreign shareholder holding 40% or more of the company shares escape scrutiny. And nothing could stop this company to be later on restructured.

Note: This page is an excerpt of Rene Philippe Dubout next book: “How to Invest Safely Into Thailand” to be published in January 2010

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

© Copyrights 2009 – Rene Philippe Dubout – This article may be reprinted if information about the author, the websites, and the URLs remain intact

Originally posted 2009-07-24 10:40:28.

Related posts:

1. Business Registration:Thai Shareholders Disclosure Requirement
2. Buying Land: Disclosure Requirement of Thai Shareholders
3. Corporate: Incorporating a Thai Company Step by Step
4. Thai Corporate Documents – The Memorandun of Association
5. Thailand Taxes: Understanding Thai corporate income tax
6. Thai Corporate Documents – The Articles of Association
7. Working in Thailand: The four Thai employees requirement
8. Doing Business in Thailand: Understanding Thai Administration